Foes Join in Praising Proposal to Relax Mortgage Rules

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A proposed new Qualified Residential Mortgage rule, introduced last week by federal regulators, received praise from both consumer advocates and the mortgage industry, groups that don’t typically agree on much.

Under new rules proposed by regulators that oversee the mortgage industry, it may get a little easier to make the biggest purchase of your life.

Six government agencies last week jointly proposed a new rule that would ease mortgage lending standards—a move that was popular among both consumer advocacy groups and the mortgage industry, a rare occurrence.

The latest version of the proposed Qualified Residential Mortgage (QRM) rule eliminates a much stricter down payment standard contained in the previous version of the rule. That version would have required lenders to demand a 20 percent down payment from borrowers.

The new proposal aligns QRM with the Consumer Financial Protection Bureau’s (CFPB) Qualified Mortgage (QM) rule, which was finalized in July but won’t go into effect until early 2014.

“This new proposal shows that regulators listened to the comments from the wide range of stakeholders involved,” Chris Estes, president and CEO of the National Housing Conference, an affordable housing advocacy group, said in a statement. “Aligning the QRM rule with the QM rules will allow more American families to become homeowners and ensures that housing markets can remain strong in the future. This is especially important for communities that are still rebuilding from the foreclosure crisis.”

Under CFPB’s rule, borrowers are required to produce income documentation showing that they can repay a loan and that their debt-to-loan ratio would not exceed 43 percent, but lenders are not required to ask for a set down payment amount.

“Understanding that sensible credit standards can exist without a significant down payment requirement will help ensure the possibility of homeownership for credit-worthy borrowers for generations in this country,” Michelle Korsmo, CEO of the American Land Title Association, said in a statement. “For more than a century, title insurance has provided this backstop, helping ensure residential mortgages are of very high credit quality while reducing risk for all parties involved in real estate transactions.”

An alternative was included in the proposal that would utilize the CFPB’s QM standards but also include a 30 percent down payment requirement—a drastically different approach that received less-favorable reaction.

The alternative rule would “dramatically favor the wealthy,” said NAR PresidentGary Thomas. “Research shows that it would take the average American more than 25 years to save enough money to buy a modest home with a 30 percent down payment.”

The six agencies behind the QRM proposal are the Federal Reserve Board, the Federal Deposit Insurance Corp., the Federal Housing Finance Agency, the Department of Housing and Urban Development, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. The agencies are accepting comments on the proposed changes through the end of October.